We'll Strip Out All The Jargon

Accounting Glossary

The Secret Language of Accounting

Accounting has traditionally been a mysterious and secretive field, where grey-suited mystics mutter indecipherable incantations as they pore over cryptic tomes and manuscripts. In the RIFT, we believe that the prophetic power they wield should rest in your hands, and the first step is to learn their arcane language...

Accounting YearThe year covered by your business’ accounts. Every business must prepare accounts for a year at a time. Accounting periods can be longer or shorter than a year

Account Receivable An amount you are owed by a customer, also known as a trade debtor.

AccrualWhen you've had the benefit of a transaction, but haven't yet paid for it, that's an accrual. This is usually when you have received the service but not the invoice, if you have received the service and the invoice then it is technically a trade creditor. Accruals Basis This is when you record a cost or income in your accounts when it's incurred, rather than when you've paid or received payment for it.

Acid TestThis is a strict test of whether you've got the cash flow to cover all your outstanding liabilities.

Assets: Something of value that a business owns, can access or otherwise benefits from.

AuditWhen an independent organisation take a close look at your finances and offers an opinion or judgement on them.

Bad DebtWhen a debtor can't pay what they owe.

Balance SheetA cornerstone of accounting. A statement showing assets, liabilities and ownership interest. It shows the company position, under new international accounting standards this will be called your statement of financial position.

Bank ReconciliationChecking to make sure that the balance on your bank statement matches the balance in your accounts.

Basis PeriodThe period for which a Sole Trader or Partnership pays tax each year.

BillAn invoice from a supplier that, sooner or later, will need to be paid.

BondAnother name for loan finance, more commonly used in the U.S.

CIS - Construction Industry SchemeHMRC’s way of collecting income tax from people who work in and around the building industry as subcontractors rather than employees.

CapitalFinance provided so a business can acquire assets and run its affairs. Often this can be the shares issued in the company, “share capital”

Capital AccountA business’s capital accounts record how much it owes to its owners.

Capital AllowancesA way of saving tax when your business buys a capital asset. It is a kind of tax relief.

Capital AssetAn asset that your business will find useful in the long term (two years or more, for instance), and whose cost is higher than your day-to-day running expenses.

Capital ExpenditureAn important expenditure designed to shape the future of a business.

CashIncludes cash on hand and deposits in a bank that you can access easily.

Cash AccountingA way of simplifying your VAT accounting. Cash accounting is one way, meaning you pay VAT to HMRC when customers have paid you, rather than when you invoice them.

ChargeWhen we're talking about interest and taxes, this is the cost of interest and tax payable reported in a Profit and Loss statement (sometimes called P&L or income statement.)

Consumable ItemA small everyday item recorded in the day-to-day running expenses of a business.

Contingent LiabilitiesA cost or other obligation that might need to bedealt with, depending on what happens in the future.

Corporation Tax LiabilityThe obligation of Limited Companies and other organisations to pay a tax on their profits to HMRC.

Cost of Goods Sold/Cost of SalesCosts directly related to the goods or services provided by the organisation.

CreditThis is when a supplier agrees to allow a customer to make payment some time after delivery.

ImpairmentA reduction in the value of an asset, beyond the expected depreciation.

Income AccountsRecords in a business’s books showing how much it has earned.

IntangibleUsually means assets with value but no physical form, like intellectual property rights.

Interest on LoansThe percentage return on a loan required by the lender.

InventoryStock held for use in the production process or for resale.

InvestorsPeople or organisations that have provided money or capital to a business in exchange for shares.

InvoiceA document asking a customer to pay for goods or services supplied to them and detailing the goods/services provided

Invoice AccountingThe standard way of calculating your VAT return. You pay VAT to HMRC when you’ve invoiced your customers, regardless of when they actually pay you.

JournalAn accounting mechanism that moves an amount from one nominal account to another.

Key Performance Indicators (KPI)Measurements that help in understanding the performance of a business.

LLPA Limited Liability Partnership is a hybrid between a Partnership and a Limited Company.

Liability AccountsCategories in a business’ books that show how much it owes.

LiabilitiesObligations to pay in some specified way for agreed transactions.

Limited CompanyA business that's considered to be a "legal person", separate from its owners and its managers.

LiquidityThe extent to which a business has access to cash or items that can readily be exchanged for cash.

Long-Term LiabilityMoney that a business will have to pay in more than a year’s time.

Management AccountingReporting financial information from within the business for use by management only.

Market Value (of a share)The price for which a share could be sold.

Minority Interest/Non-Controlling InterestThe ownership in a company held by people other than the parent company.

National InsuranceMoney paid to HMRC by employees, employers, and the self-employed. It is related to social benefits, state pension etc

NetAfter making deductions.

Net AssetsA business' assets minus its liabilities.

Net ProfitThe value of sales, minus all the costs involved.

Nominal AccountsThe categories in your records where transactions are posted in double-entry bookkeeping.

Operating MarginA way of measuring the profitability of a business, by measuring how much of its revenue is left over after paying its variable costs.

Ordinary SharesThese represent a part ownership in the company and grant the holder certain voting rights and dividends.

P11DA form that lets HMRC know about certain benefits you’ve received from your employer, apart from your salary.

P45A form that an employer must give to an employee who’s leaving their job.

P60A form that shows how much taxable salary the employee was paid in the tax year, and how much tax was deducted from their wages.

PAYEShort for 'Pay As You Earn', this is one of the ways HMRC collects Income Tax.

Payment on AccountThe amount of Income Tax and class 4 National Insurance that some business owners have to pay to HMRC for a future tax year.

Preference SharesShares in a company that give the holder a preference to receive dividends before any ordinary share dividend is declared.

PremiumAn amount paid in addition, or extra.

PrepaymentMoney paid in advance for a business cost.

ProfitCalculated as revenue minus expenses.

Profit and Loss ReportA summary of the business’ income, minus its day-to-day running costs, over a given period of time. The International standard term for this is” income statement”.

ProvisionA liability with an unknown timing or amount.

PrudenceNot overstating gains and assets and not understating losses and liabilities.

Purchase LedgerA list of all the purchase invoices ever received from suppliers, and when they were paid.

RTIReal Time Information. As of April 2013, this is the new way to report wages, salaries, PAYE and National Insurance to HMRC.

Return on Capital EmployedA measure of the value a business gains from its assets and liabilities. A business with a lot of capital investment will have a lower ROCE than one with less that manages to makesimilar profits out of it.

Sales/RevenueMoney received by the business in exchange for goods and services.

Sales LedgerA list of all the sales invoices ever issued by a business and when they were paid.

Self AssessmentThe form that many business owners need to send to HMRC each year to report how much they have earned and from what sources.

Share CapitalThe total amount of cash that Shareholders have contributed to the company.

Sole TraderA business owner who is not legally separate from their business and whose business has no other owners.

StockThe value of the goods that you have on hand to sell to your customers. If you sell services rather than goods, you won’t have any stock.

Tangible Fixed AssetA fixed asset that has a physical existence.

Tax CodeA mechanism that HMRC use to deduct tax from wages or pension income under the PAYE scheme.

Tax YearSee Fiscal Year. It's the same thing.

Trade CreditorA supplier who has supplied your business with goods services that you haven’t yet paid for.

Trade DebtorA customer who hasn’t yet paid you for your goods or services.

Trial BalanceA trial balance is a report that shows the total of all your business’s accounts, its assets, liabilities, income, costs and capital, as at a given point in time

True & Fair ViewThis is a legal requirement for UK companies not using the ISAB system when preparing their financial records.

VATValue Added Tax. It’s a tax on the sale of most goods and services.

VAT Flat Rate SchemeAn alternative way for small businesses to work out how much VAT to pay to HMRC each quarter, designed to be simpler.

Accounting has traditionally been a mysterious and secretive field, where grey-suited mystics mutter indecipherable incantations as they pore over cryptic tomes and manuscripts. In the RIFT, we believe that the prophetic power they wield should rest in your hands, and the first step is to learn their arcane language...